(Last week, I started this series by writing about how Biden’s COVID relief bill could be better with Bi-Partisan ideas. This is part 2 of that)
One of the most neglected areas of policy in the US is our policy regarding children and families. For a long time, liberals and libertarians have agreed to strive for implicit neutrality, letting individual families make their own choices on family structure and having children. And There was a certain logic to this: after all, who is the government to get involved in people’s families?
But the truth is that this implicit policy is not very neutral; it has allowed harmful social trends to continue:
1) Child poverty in the United States is the highest among wealthy nations in the world. One in six American children (about 12 million) grows up in poverty. A significant number of these children (about 5 million or 1 in 16) live in extreme poverty. Not only is this a significant moral tragedy: it also is a profoundly negative economic outcome. The relationship between poverty and education is complex. Still, common sense and research indicate a negative self-perpetuating cycle: children who grow up in poverty do worse in school, which gives them less of a chance to escape poverty. Their lost economic productivity impacts them, as well as our whole economy. This is a big reason why social welfare programs for low-income kids often pay for themselves!
2) Fertility rates are at an all-time low in the US, dropping to 1.7, well below the needed replacement rate of 2.1. If you ask parents how many children they want, they say they want to have 2.6 children. So clearly there is a large gap between the number of children parents want and the number they have:
There are all kinds of reasons to think this is a problem: children are intrinsically valuable and important to the economy. We need children to grow up and pay Social Security! We need them to start businesses, create new ideas, make our economy more dynamic. But maybe the most important role that children play in society, as Ross Douthat points out, is the unquantifiable role of both giving hope and disciplining us into sacrificing for the future. Nowhere has this been better illustrated than in Alfonso Cuaron’s adaptation of Children of Men, where we see how utterly dark and hopeless a childless society would be.
In sum, the ina’ inability to have as many children as they want should be seen as an important social issue.
2) When we look at the root cause of this decline in American birth rates, we see much of this is due to finances. You may recall this chart showing how the cost of various goods has changed over time:
Many of these costs fall disproportionately on the backs of families: education, child care, and healthcare are all substantial parts of a family budget (not to mention how housing costs are growing out of control in many superstar cities, which is not fully reflected in this chart). Like increasingly stringent car seat regulations, even small things have been shown to incentivize families to have fewer kids. I can personally attest that many people in my circles talk openly about the economic challenges of having one’s desired number of children living in Southern California. The value of financial incentives is reflected in the fact that when countries have tried helping out families with cash benefits, birthrates have gone up modestly in response
4) American Family formation has diverged drastically based on class, with college-educated Americans getting married at a high rate and divorced at lower rates than they used to. Non-college educated Americans are often opting out of marriage entirely. This is happening even though research increasingly shows that happy, intact two-parent families have better outcomes, all else being equal for their children. Again, there are some issues with correlation vs. causation, but most researchers believe that family formation plays some role in good outcomes for children.
COVID Relief
In many ways, we can expect COVID to exacerbate negative trends: families have been one of the groups most impacted by COVID. With child care and schools closed down, many families have had to figure out how to balance work and school. Many low-income children have endured difficult conditions at home without school or friends as an outlet. For many families, job losses have pushed them into poverty or deterred them from having children. Early data confirms this: we are almost certainly seeing a “baby bust” as a result of COVID, with fewer children born for possibly several years.
So I was glad to see that Biden’s original COVID relief package would increase the child tax credit for 2021. It would be more accessible to working families because it was refundable to very low-income parents. I support Biden's direction, but it is a one-year fix to a problem that needs a longer-term fix.
Shortly thereafter, GOP Senator Mitt Romney countered Biden’s proposed 1-year bump by introducing a plan of his own that would permanently change how the US government helps parents. Romney would give every parent of a child under 6 ~$350/month, and parents of children over six would get ~250/month, as long as the parental income is below 400k a year. Expectant parents will start to get benefits in the four months leading up to their child's birth. This money would actually be distributed to parents every month through the Social Security Administration instead of one lump sum as a tax refund. Unlike Biden’s proposal, Romney’s proposal would not be paid for by deficit financing but by rolling existing programs into his own while also eliminating the state and local tax deduction (SALT). If you want a full explanation, I recommend checking out the Niskanen Center white paper and this Neoliberal Podcast discussion.
To lay my cards on the table, I think the Romney plan does a couple of things that make it far superior to the existing child welfare system. I am not alone: it was pretty remarkable to see how many folks in the center-right intellectual sphere were eager to praise the plan. Tyler Cowen, Ross Douthat, Yuval Levin, David French, Ramesh Ponnuru, and Lyman Stone all clearly voiced support for the idea. Many on the Left did as well, including Matt Bruneig, Dylan Matthews, and Matt Yglesias. Joe Biden’s chief of staff, Ron Klain, indicated a real interest in working with Senator Romney on the idea. I would personally make a case for it based on these arguments:
1) Child Poverty: It would likely reduce child poverty by 30 to 50% and extreme poverty by even more. Poverty is complex, and I don’t think the solution to poverty is always as simple as giving people money. But the fact is, we in America have a very generous safety net for older adults (Social Security and Medicare) but a relatively small safety net for children. As I have already mentioned, increasing the safety net for children is fair, good on a moral level, and invests in our country's economic future.
2) Better for Working-Class Families: Romney’s proposal, which would pay out monthly through Social Security, is much better for working-class families in terms of generosity and design. Right now, the child tax credits are only available to middle-class families who pay enough taxes to qualify. Many working-class families do not have enough taxable income to qualify for the existing child tax credit. Let’s imagine a working-class family in Mississippi, with two parents and 3 children. The parents work minimum wage jobs ($7.25/hour), one 40 hours a week, and one 20 hours a week. Over the course of a year, they together earn about $21,750. They would only qualify for a little less than half of the child tax credit ($963 per child per year) because they do not have enough taxable income to claim the full benefit:
Now, many families do get benefits through the EITC (which I talked about last week), but it has two big drawbacks as a program:
Only about 75-80% of families eligible claim it because they either do not know about it at all or do not realize it would be worth their while to file taxes and claim the credit.
The EITC is only available in a lump sum during tax season, meaning that many working-class families have to use credit cards, payday lenders, or expensive “advances” from their tax preparer to cover expenses while they wait. In other words, the program's design creates a need for debt and the use of credit, which shouldn’t be necessary. People pay taxes every month; why should the government wait until the end of the year to pay out tax credits?
3) Maternal Security: For pro-life advocates, this plan seems likely to reduce the number of women who choose to have an abortion because of economic insecurity. This is both because of both the simplicity and generosity of the plan. The public should pretty universally understand a simple benefit, so you would be certain that you would have some financial help as you decide whether to raise a child. On the other hand, its generosity would also ease fears about raising a child in poverty.
4) Flexibility: A child allowance is a better structure than universal daycare or child care subsidies. It would allow parents to have choices about who takes care of their children. The money can be used for day-care, but it could also be used to pay a relative or pay bills while one parent stays at home. It allows families to make the choices that best suit their personal desires and situation. This is especially true in immigrant communities, where mothers are much more likely to stay home with children. As a parent myself, I cannot reiterate how important flexibility like this is! It is also worth pointing out that policy studies that give daycare subsidies simply passthrough greater revenue for daycare. This makes intuitive sense: given all of the structural barriers to starting a daycare center, it is not surprising that they are not a competitive market.
5) Simplicity: By consolidating different tax credits, deductions, and welfare benefits into one plan, Romney accomplishes a significant count on the always discussed, seldom tried goal of simplifying the federal government. As anyone who has tried to “Marie Kondo” their house knows, we all say we want to simplify until something needs to get thrown out. The same is true with the government. Many tax breaks and loopholes (as I will discuss later) have mighty interest groups that advocate for their existence. None may be as powerful as the rent-seeking accounting companies like Intuit, who like the tax code staying complicated. This is harmful: when in doubt, we should always lean towards simplicity in our tax code.
We should also lean towards simplicity in delivering benefits to parents. One of the most frustrating aspects of the social sector is how much is “wasted” in navigating complex systems. Everything from affordable housing to unemployment insurance to welfare has a high level of complexity. This means many parents do not access programs, and many non-profits must invest in large numbers of social workers to help people navigate systems. I have nothing against social workers: but it would be much better to access benefits without depending on social workers!
One of the few benefits that are simple to run and sign up for is Social Security. 97% of the elderly receive Social Security, and the administrative overhead in the Social Security Administration is 0.6%, meaning 99.4% of spending goes to payout benefits. Because Romney’s plan routes benefits through the Social Security Administration, there is cost savings and a better “User Experience” for the people interacting with the government, rather than the usual frustration.
Responding to Objections to the plan
Now, some are less enthusiastic about this plan than I am...including many in Congress. Unfortunately, this appears to be an issue where elected representatives are out of step with where many policy people are. I think it’s worth engaging some of the concerns:
1) Objection on the Right: Fear of Bad Incentives
On the right, the most fiercely argued point is that the plan will be too generous in giving benefits to low-income individuals and will create an incentive against work and/or marriage. This is not unfounded: all social safety net programs carry some “moral hazard” that people will be discouraged from productive behaviors. To explain this, let me take a step back for a second and explain “why incentives matter.” In almost all policy conversations, one should ask, “What behavior does this incentivize?” and “how much will it incentivize that behavior?” To illustrate, let’s use the example of teenagers:
Most people want their high-school children to work SOME when they are in high school. Working teaches responsibility, helps teens learn new skills, and to do more “adulting.” (Being real, for some parents, the best benefit of all is that they get out of the house). So it would be unwise for parents to disincentivize their teenagers from working. For instance, let’s say a parent gives a kid an allowance of $100/month. They start looking for work to pay them $150 a month mowing lawns, but the parent informs them they won’t need an allowance anymore if they start working. Being quite sharp, this teenager will quickly realize that they are actually worse off working because while working yields more money, it won’t be enough to justify the free time they lose by not working. This can be seen as a kind of work penalty: our teenager ends up losing benefits when he starts to work. I would advise parents not to design their allowance system like this!
Of course, consider the flip side: there is also a danger in having no safety net or allowance for your children! It would be just as unwise for parents to tell teenagers that they will get no support from the family and have to earn their own way if they want to eat. Why is this unwise? Well, as my dad once told me when I was in high school, it is usually not good for a teenager to work too much, given that it will take them away from other pursuits they need to invest in, like school, volunteer work, music lessons, or other cognitively enriching hobbies. Working 15-20 hours a week while in school is probably as bad an idea (if not worse) than children not working at all (and for what it’ worth, many working-class teenagers are asked to do this by their families because they are short on cash).
The point I am trying to illustrate is that when considering incentives and safety nets, we need to seek balance in how we see incentives. To bring it back to the debate over the Romney plan, it has been noted across the political spectrum that many programs, including welfare for single mothers before 1996, created unintended consequences. The two biggest of these were that when mothers either 1) got married or 2) started earning income, they quickly lost benefits, similar to our teenager losing their allowance. Again, we can call this a “work penalty” or a “marriage penalty,” In many cases, it will lead to people working less and getting married less. Governments should rightly be cautious about designing programs like this! Some on the left have not learned this lesson, like when Rep. Katie Porter of Orange county suggested we phase out a single-parent’s income at the same rate as a married couple:
But while this is a bad idea, it is also clear that the GOP has overlearned this lesson: just because past social welfare programs have included bad incentives and unintended consequences DOES NOT MEAN THAT ALL welfare programs will have the same problems! Welfare programs are not that different from the private insurance you buy: they “cushion” the impact of bad outcomes. Car Insurance and seatbelts might lead to more reckless driving by some drivers, but this does not mean they are not useful tools! It would be short-sighted to have no social safety net for families for fear of making life too easy; you end up doing far more damage in the long run to society by not providing a safety net so that those kids can still have full economic opportunity!
Moreover, to go back to the Romney plan's specifics, because the benefit is flat for American parents of all incomes, it does not contain any marriage or work penalties. In fact, as Lyman Stone writes, it actually has a marriage bonus, because many of the programs it replaces included a marriage penalty:
“Consider a couple with one child, where each partner earns half of the income. They might both individually be eligible for various benefits and credits, but when they get married, their combined income may make them ineligible as they exceed eligibility thresholds for various programs, since while tax brackets usually double with marriage, credits and welfare programs eligibility thresholds often do not.”
There is some healthy debate about whether the plan, even without a “work penalty” might incentivize fewer parents to work while their children are young. It is not clear to me that this is the case; when Canada created a child benefit in the mid-2000s, it saw its labor force grow in response, which some speculate because working-class parents had a little extra cash to secure childcare. Other studies show that similar programs decrease maternal labor force participation, but usually by a small amount.
Assuming the Romney program did slightly reduce work participation, it is also unclear that this is a bad thing. The great tension of any parent is that your time is limited: you cannot simultaneously work AND spend quality time with your children. You cannot fully optimize both, especially if you are low-income and cannot pay people to take care of household duties for you. I personally think that the Romney plan does about as good a job as possible balancing these two objectives. To the degree that it reduces work, I suspect that some parents (especially those with children ages 0-4) may use the additional cash to take some time off work, for example, working 30 hours a week instead of 35 hours a week.
If you recoil at that idea, I will mention that my employer (Servant Partners) allowed me to spread out my paternity leave to work on average 30-35 hours a week over Zeke’s first year of life. My wife was likewise able to use California’s paid leave program to take four months off after our son was born. Would it be so bad for the government to create a social program to allow working-class parents to do the same? After all, many child development experts (though not all) recommend maximizing parental involvement with children for their first year of life. I think it is logically inconsistent to have employee benefits that allow the college-educated to take time off from work to spend with their kids while recoiling from a government benefit that allows working-class people to take time off work to spend with their kids. If the GOP really wants to be a working-class party, it should think more critically about this!
Again, because there are no “benefit cliffs” in Romney’s plan, parents still have a good incentive to work more: after all, when you work more, you get more money! The concern in the 1996 welfare reform was not that parents would work a little less or temporarily stop working; it was that the design of welfare was permanently taking parents out of the labor force! It is hard for me to conceive of a world where people would not want to earn some additional income over and above the $350 they get under this plan.
Objections on the Left: Cuts to Existing Programs
Now, of course, on the left there are some fears about Romney's plan too. They have not been voiced as loudly (though they probably would be if Joe Biden and the Democrats in Congress fully adopted his plan as their own). So I will not spend as much time responding to these objections, but I do want to acknowledge them at least:
Many on the Left are worried that Romeny cuts existing programs to pay for the child allowance. To be precise, he eliminates the child tax credit, the Child and Dependent Care Credit, slims down the EITC, eliminates the “head of household” tax filing status, and eliminates TANF (Temporary Aid to Needy Families, aka welfare post-1996 reform). Of these, the main two that are raising concern on the Left are TANF and the EITC.
While on paper, cutting TANF is a blow to low-income women, in reality, most of TANF’s block grants do not go to poor women. TANF is doled out to states as a block grant without strong restrictions; thus, many states use it to cover other budget needs. In Mississippi, almost all women who apply to TANF are denied:
Like I argued earlier, I firmly believe most parents will benefit from a more simple, streamlined welfare benefit that they do not have to find a social worker or spend extensive energy and patience to navigate. I think exchanging TANF for a child allowance will be one key step in doing this.
The EITC is a good program but inferior in structure to the child allowance in uptake and overhead costs. Again, making the EITC a more straightforward work subsidy and making child benefits into an allowance I see as a win-win. If you are concerned with making the EITC more generous, I would suggest, as I did in my last COVID relief post, that Biden uses deficit spending to expand it rather than cut everyone a $1400 check. This would also probably ensure that the child allowance would not reduce labor force participation by making work pay more, thus being bi-partisan!
I suspect that the real hesitation among Democrats is that Romney’s plan eliminates the state and local tax deduction (SALT), allowing itemized tax filers to write off their state and local taxes. Democratic leaders Chuck Schumer and Nancy Pelosi have been vocal defenders of SALT and want to see it restored to its pre-2017 levels (before the Trump tax bill capped it). If this is true, this is a terrible idea: SALT is a classic “tax loophole” that generally benefits wealthy folks in California and New York. Almost all the SALT deduction accrues to the wealthiest taxpayers:
[the] deduction still largely beneèts families towards the top of the distribution. Around three-quarters of the benefit goes to families in the top fifth of the income distribution; 26 percent to the 95th-99th percentile; and over 12 percent to the top one percent:
Worse yet, there is little empirical reason behind its existence. No other country (including Canada) has a provision similar to SALT. I have heard urbanists like Richard Florida argue that SALT leads to more spending on schools and local services and argue that this is a good thing to incentivize. It is unclear to me if that is true; you could also argue that SALT leads to subsidizing poor pension decisions by local governments! I agree with the Brookings institute when they say that:
But if the goal is for the federal government to provide additional support to state and local governments, far better to do so directly, rather than by the roundabout route of offering a tax break to the rich
If anything, repealing the measure might make states take a long hard look at relaxing some of our terrible housing policies as a way to “juice” tax revenues without hurting the economy. To the degree that is true, Democrats should stop supporting the SALT deduction!
Conclusion: Age and the Politics of Nihilism
One interesting dynamic in the discussion of this policy is the divide in the reaction by age. By and large, older policy people were more skeptical of the Romney proposal on both the left and the right. Younger policy people were more enthusiastic about it. Why is this? Well, there is a coherent and emerging theory of American politics that centers on Baby -Boomers throwing their weight around to keep their own interests front and center, at the expense of everyone else. After all, 4 out of our last 5 presidents have been Baby Boomers (Biden being a little too old to qualify), and 3 of the last 5 were born in the same year (Clinton, Bush, and Trump were all born in 1946, the year the “baby boom” began in earnest).
If you want to make a case for this theory, it will look as follows: you can see this in how the focus of social policy has changed through the decades. In the late 60s, this looked like many boomers opposing the Vietnam war because they did not want to fight in it. In the 70s, it looks like a more lax attitude towards sex and drugs because boomers wanted to indulge in them. By the 80s, boomers had gained enough economically that their focus shifted toward cutting their taxes. By the 90s, the focus was on combating rising crime and curbing drug use (now that it was “the young” who were engaged in this behavior). By the 2010s, it was focused on protecting their home prices and neighborhoods from pesky younger people who want to afford housing near their jobs.
I do not buy this theory: I don’t think you can ever explain something complex as history with one simple story, nor do I think most people engage in politics cynically. But I think there is a kernel of truth in this framework, which helps explain why our politics is so stuck. Many of our politicians (and their donors) are totally out of touch with the economic difficulties that younger generations face.
In my post about Gamestop, I talked about how increasingly, activism has been captured by nihilism: the belief that some abstract “system” is rigged against you. I pushed back on that notion because I think it is self-defeating: to the degree there is a “system,” we should focus on the incremental reform of that system in a direction that creates more opportunity. But examples like this illustrate why so many younger people turn to nihilism: because they believe that those in power will never make serious efforts to make life better for them. And you can see this in both the Democrat and the GOP reaction to the plan.
The GOP needs to realize that if it wants to succeed, it needs to offer concrete policies to help working people. Many on the Left saw the 1996 welfare reform as the GOP managing to create a narrative around welfare rooted in racial resentment against African Americans. I do not think this is entirely a good-faith reading. Still, the GOP needs to realize that it will continue to have serious problems with many voters of color if it throws up objections every time a proposed social safety net program helps working-class people, many of whom happen to be people of color. If you want to reform the GOP, you need to acknowledge this and be explicit in moving forward with a different, more-inclusive agenda.
On the other hand, the Democrats are also a dangerous game here: to help working families; they have to face the reality that not all economic inequality can be blamed on the 1%. As Matthew Stewart argued in his 2018 Atlantic piece, the much bigger problem in opportunity hoarding in America is the wealthy coastal elites that are the top 10%, who are now some of the most reliable donors to the Democrats. Notice how Joe Biden went out of his way to say that he would not raise taxes on people making below $400,000, which conveniently means not raising taxes on many of these well-off Democratic donors. If you want to be serious about delivering for working-class voters, you should be honest about this.
If both parties' leaders are serious about delivering to Americans and starting to push back on this nihilistic trend, they should put on their big boy pants and give this idea a serious look.